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Is Now the Time to Sell Your Home?

Editor's Note: This is the second in a series of articles on home buying that will be appearing on Benzinga.com over the next few months. Click here to read the first: Is Now the Time to Buy a House?

Is now the time to sell your home?

As the real estate market collapsed, the only people who sold their homes were the ones who absolutely had to. With values falling, nobody wanted to sell a depreciating asset and many homeowners decided to wait out the crisis.

Now, however, with the housing market in a slow, but prolonged, recovery many are considering if now is the right time to put their home on the market. And, for some, the answer is yes -- but not everyone should be on the phone to his or her Realtor. Potential sellers should consider a few factors before putting up a “For Sale” sign on the front lawn.

Mortgage rates are really low

Low mortgage rates theoretically give buyers more buying power -- that should make it easier for sellers to unload their homes. The problem, however, comes when potential borrowers actually try to get a loan at those low rates. In many cases, buyers who lack stellar credit –- even those who would have easily qualified a few years ago –- are having trouble getting financing.

This has been a source of frustration for sellers as nearly all purchase and sale agreements have a mortgage contingency. If a buyer can't get financing, then the deal is off. In some cases, a small deposit is forfeited to the would-have-been seller, but the money rarely makes up for the time lost or the frustration of having to go back to the drawing board and find a new buyer.

Time to sell?

Low mortgage rates will mean a greater pool of buyers, which might mean multiple offers or a bidding war. The harder standards, however, also make the chances of a deal falling through greater, so, buyers should consider their willingness to tolerate a deal, or even multiple deals, falling apart before they make the decision to put their home on the market.

In many markets, inventory is low

For the last few years, most communities had a glut of properties on the market including foreclosures and short sales. While the choices are great for buyers, it's fairly awful for a seller. The more houses that are on the market means the less a seller needs to actually buy the home.

People often want to buy homes for geographic reasons. Perhaps they want to be in a specific school district or maybe they need convenient highway access. If there are fewer homes to buy that meet those criteria, then –- as long as there are multiple potential buyers who desire the same thing –- prices go up.

In now the time?: Sellers should write down the reasons their home is attractive. It might be location, number of bedrooms or something else. Make a list and check Realtor.com (or work with a real estate agent) to see how many other properties meet that criteria on the market. If it is the only four bedroom home in a popular school district that would be for sale, then, the seller might be in a strong position. If it is one of many one bedroom, one bath condos in an unremarkable location, then it might be best to wait.

Beware the appraisal

Before a mortgage company will fund a mortgage, it requires an appraisal. The appraisal is done by a supposedly-independent, third-party appraiser and it is meant to establish an actual value for your home should the person buying it fail to pay his mortgage and the bank is forced to foreclose.

Appraisals used to be very liberal in assigning value. If the buyer had acceptable credit, banks wanted to lend money. And, since house prices were steadily climbing, even if a home wasn't worth quite as much as an appraiser said it was, chances are it would be soon.

Since the housing crash, however, appraisers are operating under new orders. Instead of making the appraisal fit the loan, they are making the appraisal fit a sort of worst-case foreclosure scenario. This has been especially hard on the bottom and the top of the market.

At the bottom of the market, buyers tend to lack large down payments, so there is little room cover for a low appraisal. Loans, in general, must conform to a ratio between how much is being loaned and the value of the property. A buyer always has the opportunity to put more down to make the numbers work, but, if the buyers have no more cash to add to the deal, things either fall apart or the seller must take a lower price.

At the top of the market, however, it can be even worse as values have fallen in many markets making it difficult to assess what a home would actually be worth. Add in foreclosures or short sales that get used as comparable sales and the threat of a low appraisal can be enough for many at the top of the market to continue to wait for a stronger recovery.

Time to sell?: Work with a real estate agent to see how much houses that compare have sold for recently. If the sale price is within the range of recent, comparable property sales, then go ahead and put the house on the market. If, however, the house is the nicest one in the neighborhood or it's worth more than comparable sales because of improvements like fancy bathrooms, a redone kitchen or a swimming pool, it might be better to wait to list the home.

The bottom line

The housing market is getting better, but many hurdles remain. In lots of markets it's now possible to sell homes that would have been unsellable only a few months ago, but it's still a buyer's market in many places.
Right now, the markets that have come back the strongest are, in many cases, the ones that were always the most desirable. As inventory dries up in those markets, prices will rise and people will cast a wider net when looking for houses to buy.

Before deciding whether to sell the home, do an honest assessment of where the property fits on the desirability scale. A real estate agent can help sellers make this decision, but real estate agents only make money if they help someone buy or sell a home. They are great sources of info, but sellers have to do some legwork.

On the positive side, if a seller decides to wait, mortgages are likely to stay low and inventories may grow tight as new home construction fell off greatly during the housing crash. At the very least, there is a hope for a better answer down the line.